Standards and Identifiers

Standardisation is vital in payment systems as the adoption of identifiers, uniform standards and formats help eliminate frictions and inefficiencies in processes. Considering the importance of standards in the payments space, RBI has prescribed standards for many payments and has been instrumental in developing a few others. Adoption of these standards and identifiers have contributed in making the payment systems the force they are today.

Magnetic Ink Character Recognition (MICR)

MICR, is a character recognition technology used in the banking industry to streamline the processing and clearance of cheques and other documents. MICR code is a 9-digit code printed on cheques using technology that uniquely identifies the bank and branch participating in an Electronic Clearing System (ECS). The MICR code comprises,

• the first three digits representing the city (city code) - they are aligned with the PIN code used for postal addresses;
• the next 3 digits representing the bank (bank code); and
• the last 3 digits representing the branch (branch code).

Cheques with MICR code are run through MICR reader and sorter machines, thereby enabling faster processing, sorting and clearing.

MICR clearing was introduced in India in mid 1980s and this standardisation aided in automating the cheque clearing process thereby making it efficient.

INdian FInancial NETwork (INFINET)

In order to upgrade the country's payment and settlement systems, RBI had taken the initiative of providing a communication backbone in the form of the satellite based INFINET using VSAT technology to the banking and financial sectors. The task of designing and developing the communication network was entrusted to IDRBT. The Closed User Group (CUG) Network uses VSAT technology and is a Time-division multiplexing (TDM) / Time-division multiple access (TDMA) network with STAR topology for Data and with Demand Assigned Multiple Access-Single Channel Per Carrier (DAMA-SCPC) overlay with mesh topology for voice and video traffic.

The primary objective of INFINET for the banking and financial sector was to enhance efficiency and productivity on the one hand and provide state-of-the-art customer services through innovative delivery channels such as internet banking, home banking, etc., on the other.

Structured Financial Messaging System (SFMS)

SFMS, developed by IDRBT, is a domestic messaging standard used for financial messaging in India. SFMS is an Electronic Data Interchange (EDI) for banks and it uses INFINET as the communication medium. Various intrabank applications use the SFMS to improve efficiency and speed in fund transfer, MIS reports, information reports, etc. SFMS is also the universal platform for carrying messages pertaining to the centralised payment systems, thus, meeting the requirements of both retail and large value fund transfers.

The basic architecture of SFMS is a 4-tiered with hub connected to bank gateways, which are connected to bank servers. The bank servers in turn are connected to offline branches. The SFMS messages from a bank branch to another bank branch will be delivered via bank gateways and the hub. Intra-bank messages are however, switched at the bank gateway level and are not required to be routed to the hub.

Indian Financial System Code (IFSC)

Indian Financial System Code (or more commonly known as IFSC) is a 11-digit alpha-numeric code used to uniquely identify a bank and its branches with

• the first 4 digits representing the bank;
• the 5th character is zero; and
• the last 6 digits representing the specific branch code.

The IFSC is mandatory for fund transfers through various payment systems (RTGS, NEFT, IMPS), as it helps to identify the destination of the beneficiary bank and branch.

Since the implementation of core-banking systems by banks with all branches connected to a centralised system, RBI now allocates only the primary IFSC representing bank code, and banks can create / modify / delete additional IFSCs for their own branches through IFTAS. The updates are circulated by IFTAS to all member banks to ensure the same reflects in their systems.

There are discussions on whether MICR has outlived its purpose of existence and whether there is scope for two sets of identifiers to exist - MICR and IFSC.

ISO 20022

ISO 20022 is a multi-part International Standard prepared by ISO Technical Committee TC68 Financial Services. ISO 20022 is an emerging global and open standard for payments messaging. It creates a common language and model for payments data across the globe. India's RTGS was the first large value payment system in the world to be implemented adopting the ISO 20022 standard for messaging.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

SWIFT is the world's leading provider of secure financial messaging services. SWIFT has become the industry standard for syntax in financial messages. Messages formatted to SWIFT standards are read and processed by many financial processing systems, whether the message travelled over the SWIFT network or not. SWIFT standards have been used across the globe for domestic and international financial messaging services. In India, the SWIFT messaging standards are used for all cross-border payment transactions.

Legal Entity Identifier (LEI)

LEI is a 20-character, alpha-numeric code (based on the ISO 17442 standard), to uniquely identify legally distinct entities that engage in financial transactions. It points to key reference information that enables clear and unique identification of legal entities participating in financial transactions and also contains information about an entity's ownership structure and thus answers the questions of 'who is who' and 'who owns whom'.

LEI was first made mandatory in India by RBI in June 2017 for all participants in OTC derivative markets (rupee interest rate derivatives, foreign currency derivatives and credit derivatives). Following a gradual approach for adoption of LEIs in India, RBI has further mandated LEIs for non-derivative markets (government securities markets, money markets and non-derivative forex markets) and for large corporate borrowers (with total exposure of more than ₹ 50 crore to banks). The implementation for OTC derivative markets and large corporate borrowers has been completed. In case of non-derivative markets, it was implemented in a phased manner.

As of now, around 16 lakh LEIs have been issued across the world. LEIs can be issued to an Indian Company by any Local Operating Unit (LOU) across the world including Legal Entity Identifier Limited (the local LOU). As on December 31, 2020, 47,677 Indian Companies have been issued LEIs (32,008 by LEIL and 15,669 by other LOUs).

Source : RBI